With Startup20’s call to allocate an ambitious sum of USD 1 trillion per annum into the startup ecosystem by 2030 receiving firm support from Saudi Arabia’s Prince Fahad Bin Mansoor at the Shikhar Summit in Gurugram, India couldn’t have wished for a more resounding endorsement of the Startup20 Engagement Group initiative under its G20 Presidency. Or, for that matter, a better finale to the successful completion of Startup20’s inaugural year. The Shikhar Summit marks the first major milestone of the Engagement Group, which is a key Indian intervention to bring about convergence of diverse experiences and knowledge, foster collaboration, and bridge gaps between the innovation ecosystems of countries.
For India, the global recognition of the potential of startups comes at a time when the country’s “remarkable economic scale and market potential have enabled startups to flourish and thrive in the global startup ecosystem,” in the words of Commerce Minister Piyush Goyal. India’s huge talent and the skill of its demographic dividend, along with a large market potential, have made it attractive for startups and grown the country into the world’s third-largest startup ecosystem. Over the last seven years, India has registered 100,000 startups, including more than 100 unicorns, that have made significant contributions to various sectors such as health, finance, and agriculture, generating employment opportunities and fostering innovation. At the G20 level, there are as many as 850,000 startups among the member nations, with over 98,000 in India. Additionally, there are over 600 unicorns across the G20, with India holding about 108 of them.
The summit was more than just a power-packed show with Goyal, Minister of State for Commerce and Industry Som Parkash, India’s G20 Sherpa Amitabh Kant, and Chair of Startup20 Chintan Vaishnav in attendance, signaling India’s commitment to fostering an enabling environment for startups and reinforcing its position as a global leader in innovation and entrepreneurship. Vaishnav sees the Startup20 Shikhar’s importance in terms of India’s G20 presidency and the leadership role of a country that has been at the forefront of a robust startup ecosystem. “The Startup20 Engagement Group was proposed by India and launched by India as a dedicated platform within the G20 framework that focuses on facilitating dialogue, promoting innovation, and fostering growth in the startup ecosystem. So it is, in some ways, the legacy of India’s G20 Presidency. Not only have countries agreed to incorporate this group into the G20 architecture but they have also participated really enthusiastically,” Vaishnav told the Sunday Guardian. According to Vaishnav, there is a huge amount of startup activity now in the Middle East, Saudi Arabia, and the UAE. There is also startup activity in Indonesia, Australia, some parts of Europe like the Netherlands. “The US and UK are already quite vibrant. We also have interest from Turkey and Bangladesh, which are very interested in learning from nations that have built a robust startup ecosystem,” says Vaishnav.
Goyal’s call for the collective responsibility of all nations to support innovation and the startup ecosystem underlines the need for concerted effort to tackle challenges for the sector. The key challenge is financial support. Indian startup funding declined during the first half of 2023, according to the ‘Tracxn Geo Semi-Annual Report: India Tech – H1 2023’, which highlights the drop in funding for Indian startups in the first six months of 2023, largely due to a sharp dip in early-stage rounds. The report by Tracxn (a SaaS-based market intelligence platform) shows a decline of 72 percent in startup funding in H1 2023 compared to H1 2022. The total funding in H1 2023 was about USD 5.5 billion, much less than the funding worth USD 19.7 billion seen in the first half of 2022. According to the report, early-stage rounds secured USD 1.4 billion during the period, a decline of 73 percent from the first half of 2022, and 44 percent less than in the second half of 2022. India also saw a decline in the number of new unicorns in H1 2023, unlike H1 2022, during which about 19 new unicorns were registered. There is already growing recognition of the formidable constraints of capital flow, not only in the context of India but also among G20 countries, with Goyal calling for a focus on facilitating the exchange of ideas, best practices, and funding mechanisms, and promoting collaborations in research and development. In that sense, Vaishnav underscores the importance of specific action points outlined in the Policy Communiqué, such as creating a networked institution to support startups and ecosystem stakeholders across the G20, increasing and diversifying access to capital, easing market regulations for startups, and scaling up startups of global interest. On the ground, various initiatives are taking shape, like the Digital Innovation Alliance program under India’s G20 Presidency, which brought together the startup ecosystems of G20 nations and nine invited guest countries to offer virtual accelerator mentorship, funding support, investor pitching opportunities, access to global investors, corporates, and government officials for potential funding as well as strategic alliances.
Chairman of the Startup India Seed Fund Committee HK Mittal highlights the Startup India Seed Fund, which operates entirely on a digital platform and provides startups with up to Rs 20 lakh as a grant and up to Rs 50 lakh as an investment for proof of concept, prototype development, product trials, market entry, and commercialization. So far, Rs 945 crore has been sanctioned under the SISFS for a period of 4 years starting from 2021-22. The Government has also established the Fund of Funds for Startups scheme with a corpus of Rs 10,000 crore, which has not only made capital available for startups at early stages, seed stages, and growth stages but has also played a catalytic role in terms of facilitating the raising of domestic capital and reducing dependence. Asked about the funding scenario, Vaishnav recalls that the last financial year (FY22-23) was a bonanza year. “There was a lot more investment in startup ecosystems partly because all the activities were resuming in the post-Covid world. It’s just that there was an overall reorientation of the economy. This will not continue. It will go back to what it was,” Vaishnav told the Sunday Guardian. According to a Grant Thornton Bharat deal tracker report for April 2023, private equity activity saw 76 deals valued at USD 4.5 billion in the month, with the funding winter continuing to cause a 45 percent decline in investment volumes. The startup sector continued to drive the volumes, drawing investors’ attention towards innovation and tech. Shanthi Vijetha, Partner, Growth at GT Bharat, expects to see an uptick in PE activity in the coming months on the back of startups’ focus on profitability, resulting in investors turning bullish on select pockets of the Indian market.”